Tuesday, January 24, 2017

Eric Sprott 'driving the bus' on Kirkland Newmarket merger

Kirkland Lake Gold (KLG.TO) has agreed to join forces with Newmarket Gold (NMI.TO) in an all-stock deal worth about $1 billion.

Retail and institutional investors are likely to take a shine to both the deal and the new gold company, according to Andrew McCreath, BNN Markets Commentator and founder of Forge First Asset Management.

“This is a deal that is trying to make a stock more interesting to more shareholders … and also to lower the cost of production of the combined entity with a higher production base,” he said on Thursday.

Kirkland Lake Gold shares will be exchanged at a ratio of 2.1053 Newmarket shares per Kirkland share, the companies announced in a press release. Once the deal closes, Newmarket shareholders will receive 0.475 shares of the combined company for each share held. Kirkland’s shareholders will emerge with 57% ownership of the merged company. The transaction is expected to close in the fourth quarter of this year, pending approvals.

Newmarket Gold has been on an aggressive expansion spree with the help of Eric Sprott – the noted gold bug. Sprott holds more than nine per cent of Newmarket’s shares and is also the chairman of Kirkland Lake Gold. “Clearly, Eric Sprott is driving the bus on making this transaction work,” said McCreath.

Newmarket CEO Douglas Forster has been trying to build the company into a mid-tier gold producer for the past year. Shares of Newmarket are up more than 250 per cent over the past year – that surge will likely dissuade another company from trying to make a competing bid for the company, according to McCreath, who thinks the popularity of the stock will likely make the deal appealing for traders. “I think this will be a nice little feast day for the merger arb funds out there that like these kind of deals.”

The higher production and lower cost profile will also make the deal appealing to a broader share of gold investors, added McCreath, whose Forge First doesn’t hold shares in either of the merging companies.

The new company will have total gold production of about 500,000 ounces per year from Kirkland’s flagship Macassa Mine in Northern Ontario as well as the Holt, Holloway and Taylor gold mines – all in northeastern Ontario. Newmarket currently operates three gold mines in Australia.

“Macassa is not exactly an easy mine,” McCreath pointed out. “There’s probably not a lot of upside unless gold goes way the heck up from here.”

- Source, BNN

Friday, January 20, 2017

Eric Sprott bets millions on a gold producer and 10 out of 10 analysts agree it's a buy

Gold bug Eric Sprott’s increased stake in Newmarket Gold Inc. has renewed interest in the junior producer, which operates three mines in Australia. Investors are now looking for the Vancouver-based miner to fulfill its promise to boost production while controlling expenses and not overpaying for acquisitions, as the price of gold sits stubbornly at about $1,200 (U.S.) an ounce.

Shares of Newmarket, which merged with Crocodile Gold Corp. in July, have risen by about 13 per cent since the company said on Monday that Mr. Sprott bought 10 million shares to boost his ownership stake to 8.7 per cent. He purchased the stock from Luxor Capital Partners LP, which is still Newmarket’s largest shareholder, now with a 28.7-per-cent stake.

All 10 analysts who cover Newmarket have a “buy” recommendation. The analyst consensus price target over the next year is $3.03 (Canadian), which is about 23 per cent above its current price of $2.46. The stock is up about 82 per cent so far this year.

“As far as junior producers go right now, this is our favourite in the gold space,” said Raymond James analyst Chris Thompson, who has a $3.30 target on the stock, calling the valuation “cheap” compared with its peers in the junior mining space.

Mr. Thompson said the increased investment from legendary investor Mr. Sprott “provides a vote of confidence” in the company’s management and future valuation.

Newmarket’s board includes well-known executives such as mining financier Lukas Lundin and Randall Oliphant, the executive chairman of New Gold Inc. and chairman of the World Gold Council.

“We consider this ‘new kid on the block’ to be underowned by traditional institutional resource fund managers, and to have above-average potential to qualify for addition to several precious metal indices over the next 12 months,” Beacon Securities analyst Michael Curran said in a note. His target is $3.25.

Last month, Newmarket reported an increase in reserves and resources at its flagship Fosterville mine, which could extend its production life.

BMO Nesbitt Burns analyst Brian Quast increased his target on Newmarket to $3 from $2.75 as a result.

The company has no debt and is benefiting from the weak Australian dollar, when compared with the U.S. currency. Gold is priced in U.S. dollars, which means the company receives more Australian dollars per ounce of gold sold. Operating costs are also paid in Australian dollars, which helps to increase margins.

Risks for the stock include a strengthening Australian dollar, the high cost of production in Australia, as well as the potential of overpaying for acquisitions, which has been an issue for gold producers in recent years after the price of gold plummeted from its record above $1,900 (U.S.) in 2011.

“It’s always a little risky and generally M&A activity is not looked upon favourably unless it’s an absolute slam dunk, and there are few of those around at the moment,” Mr. Thompson said.

Newmarket chief executive officer Douglas Forster said the company is on the hunt for acquisitions in Australia and North America, to help reach its goal of becoming a mid-tier gold miner producing 400,000 to 500,000 ounces a year, up from expected production of 205,000 to 220,000 ounces in 2016.

“We do see opportunity, that’s the good news, but we’re cautious,” said Mr. Forster, noting that management and insiders together own about 8 per cent of the company.

He wouldn’t comment on whether there has been any interest in a takeover of Newmarket, but said a hostile bid would be difficult to pull off, given that nearly half of the shares are owned by management, Mr. Sprott and Luxor.

“We’ll do whatever makes sense and that maximizes shareholder value,” Mr. Forster said. “Hopefully, that means we are growing by acquisition and organically. If it means someone else is [interested in acquiring us and achieving] our goals, then obviously we would have to consider it. It doesn’t mean we would support it.”

Peter Imhof, vice-president and portfolio manager at AGF Investments Inc., said the stock is a bit too small for him to own in the AGF Canadian Growth Equity Class fund. He also cited concerns in the market about Luxor looking to unload more of its shares, although Mr. Sprott’s investment is a positive sign.

“You always have to pay attention when he’s taking a big position in the company,” said Mr. Imhof, who used to work with Mr. Sprott at Sprott Asset Management.

Luxor has also granted Mr. Sprott a right of first refusal to buy another 16.2 million shares by the end of the year.

Monday, January 2, 2017

Eric Sprott - US is Broke and By Far the Biggest Issue

Renowned money manager Eric Sprott is still very bullish on physical gold and silver. Why? Sprott proclaims, “The U.S. is broke. We know they’re broke. . . . About a thousand professors have signed up and told Congress you’ve got to deal with this issue, and it is immediately ignored, but it is by far the biggest issue. It’s not just government. It’s corporate pension plans, and state pension plans and all these unfunded obligations where everyone thinks they are going to receive something only to find out that they are not going to receive something. . . . The math is pretty simple. The U.S. is broke, and I don’t want to single out the U.S. Lots of countries are broke. I am sure Japan is broke, and I am sure there are European countries that are broke. We can’t keep extending and pretending and suggesting everything is great. Unfortunately, someone is going to pay the price, and I am not sure when the price is going to be paid. The analogy I use is we all knew ten years ago that Detroit was broke. . . . It was so mathematically certain that you knew what was going to happen. The same thing will happen to the United States.”

How has the economy stayed afloat even though the U.S. is broke? Sprott, who manages nearly $7.5 billion in total assets, contends, “I take it back to NASDAQ 2000 when we had our crash, and there really should have been a normal secular bear market. Along comes the government and their ‘cash for clunkers’ and ‘home buyer tax credit’ and HARPS and TALF and too-big-to fail and printing and ZIRP. This was an elongated process of trying to hold it together. All of this was supposed to have a huge impact on the economy, and yet, we have had negligible growth. In the meantime, all the debts have soared. You have student loan debt, and now students can’t afford to buy a home, so they are all living with their families. You have so many people on food stamps, and you have people taking advantage of the disability fund . . . in the latest statement, it goes broke in a year. . . . This is symptomatic of the problems.”

On The Fed’s constant indecision on whether or not to raise interest rates, Sprott says, “You’re getting a rope-a-dope. One minute you think one thing, and the next minute you think the other. I am having a tough time thinking rates are going to go up (in December). One of the things that all central banks are doing is losing credibility, that people really believe that they know what they are doing. We saw what has happened in Japan the last 25 years, and we see what’s happening in Europe which is what’s happening in the United States. Economic growth, if there is growth, is so anemic . . . and I believe it’s getting worse as this year progresses.”

On his physical gold and silver investments, Sprott says, “I don’t lose any sleep over the price of gold going down in the sense that I believe what I believe. I believe it’s been manipulated. It’s very much about currency and economics of the Keynesian scheme that we’re going to spend money, print money and it’s all going to work. It’s not working. I don’t want to wait and find out the day it falls apart because when it falls apart someday, then it will be too late. I want to be positioned beforehand. I can remember shorting stocks before March of 2000. It was a bit of a rough ride for three months, but my gosh, when it rolled over . . . you have to be a little bit early on things. I believe the last four years have been orderly and created to be difficult. I think gold would have gone up, but they could not stand for it to go up because they were printing money. If you are printing money and gold goes up, everybody figures it out. . . . I’ve been around for a while, and I have the patience to hang in there. I have been a buyer of gold stocks, and so I am hopeful this will end up being a very, very rewarding trade.”

Sprott predicts, “There has to be a collapse. It will be way bigger than 2008. We had a debt problem in ‘07 and ‘08 and the debt has exploded.”

- Source, USA Watchdog